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Author: Fole1967

Research and development seen as crucial element to guide businesses into the next century

Until the mid-1970s, the Louisville Slugger represented the leading edge in baseball-bat technology. Sluggers were used then, as today, by nearly all major leaguers, and the bat had assured a measure of fame and fortune for Hillerich & Bradsby Co., a Louisville firm founded in 1884.

Then came the advent of the aluminum bat. Much to the surprise of many observers, it caught on. Even the experts at Hillerich & Bradsby, steeped in the rich tradition of an all-natural wood product, were forced to alter their views.

“When aluminum came in, we were one of the last companies to get into it,” recalled Bill Williams, vice president of advertising and public relations for Hillerich & Bradsby. “Quite honestly, we were dragged kicking and screaming into the aluminum-bat business. Consequently, we were followers, and we found out very quickly that even with the wonderful name recognition of the Louisville Slugger, that brand loyalty does not necessarily translate to a different product.”

Then ensued a classic example of what a concentrated research and development effort can do for a firm, even one forced to play catch-up with the new kid in the batting box.

“We had to spend a lot of time, a lot of money and a lot of effort to play catch-up,” said George Manning, vice president of technical services for Hillerich & Bradsby.

The popularity of aluminum bats dropped the company’s output of wooden bats from 6 million a year to only 900,000 a year at one point, said Williams.

“From 1974 to about four or five years ago, there was a lot of frustration for us,” he added. “Mr. Hillerich, our president, got personally involved in it. About five or six years ago, he said ‘Look, we’re going to start talking to some of these top-of-the-line softball players, and we’re going to ask them what they like. We’re going to quit sitting here in Louisville deciding what everybody likes. We’re going to find out, just like we have for so many years in good softball bats.'”

So the firm started working with softball teams–aluminum bats may not be used in the major leagues, but are favorites with softball teams–testing equipment on the field and in its own research facility in Mount Pleasant, Texas.

“They’d come back and say, ‘This bat is not worth a darn,’ and we’d start again, and it all paid off,” said Williams.

The TPS line of aluminum bats that the firm developed about three years ago has produced “the best-selling softball bat in the world, and now we’re introducing a graphite bat that we think is going to be successful,” he said.

The newest bat developed by the company is “made of carbon and glass fibers,” said Manning. “It is a performance bat unlike some of the competitive composite bats that have been on the market–it equals the performance of the top-grade aluminum bats.”

The carbon-and-glass bat took about three years to develop and was introduced in February. Despite the hefty price tag, $150 vs. $110 to $120 for an aluminum bat, the composite already has drawn orders from “all across the world,” said Manning.

The firm’s overall sales for the latest fiscal year, which ended in June 1991, were about $90 million, said Williams, adding that the figure represented “the most profitable year in our history and the best sales year in our history.” This year the firm will make about 1.4 million wood bats, and “probably for the first time,” more than 1 million aluminum bats.

“Last year was a record year, and this year we’re already ahead of last year,” Williams added.

The company’s success isn’t due solely to the turnaround in the baseball-bat market, however. Williams said R&D was perhaps even more important in another of the company’s product lines–golf clubs.

Hillerich & Bradsby also makes hockey sticks, sells baseball and softball gloves–which are designed by the company but manufactured elsewhere–and has a timber division. Williams said last year was “outstanding” for those divisions as well.

Although the privately owned firm will not release figures on dollars spent for R&D, it is “an extremely important part” of the manufacturing process, Manning said.

“The name of the game in this business is product performance,” Williams added.

“In general, the companies that continue to be successful in the United States are the ones that have continued to put a significant portion of emphasis on research and development,” said Dr. Thomas Hanley, dean of the J.B. Speed Scientific School at the University of Louisville. “If you find a company that isn’t doing this, you’ll find a company that’s trying to live on yesterday’s technology. And eventually, they’re going to get caught.”

Executives of local companies agree.

“We’re in a very competitive industry, and we must stay abreast of the industry,” said Lawrence E. O’Connell, chairman and chief executive officer of Bunton Co., a Louisville-based manufacturer of heavy-duty lawn- and turf-care equipment.

While he would not release sales and budget figures, the company traditionally has allocated about 10 percent of its total payroll to R&D, O’Connell said.

“We’ve brought out a great deal of new products on a rather timely basis over the last year and a half, and a lot of what we’ve done has been for our turf equipment and golf line,” he said. “That’s the area that we feel we’re going to enjoy the most growth in.”

The backbone of his business is the rotary line of commercial mowers, O’Connell said. “And we’ve expanded the rotary line” with a new hydraulically powered mower, which enhances maneuverability, as well as other products, he added.

R&D is “absolutely critical” to his firm “because it helps you focus on what products you should have in the line, and that’s very important. You can have a large product line and have a lot of inventory because you don’t sell it. If you’re exercising the proper research and development concepts, you will have products that are constantly improving and changing to meet the needs of the market.”

Bunton has an R&D prototype shop and test facility, he said. Use of sophisticated, computer-assisted equipment at the facility enables the company to move “rather quickly to the manufacturing process,” O’Connell said.

In general, most sources interviewed agreed that the more competitive the business, the more the need for R&D.

“The markets we serve are very competitive,” said Ronald Schneider, director of corporate manufacturing services for Thomas Industries Inc. The Louisville-based company specializes in lighting and compressors.

“As diverse as we are, with operations around the country and the world, normally the plants have their own research and development efforts,” he said. “At the corporate level, we support those efforts, particularly in electronics.”

According to the company’s preliminary annual report for 1991, Thomas Industries spent $12.1 million for R&D last year, up from $11.1 million in 1990. Meanwhile, total sales for 1991 were $408.3 million, down from $461.7 million in 1990.

“We try to have a staff that is dedicated to product research and that calls on outside sources when the need arises,” said Schneider. “We do that in lighting also. We have an outside electronic technology company that’s working with our R&D group to complement them on specific projects.”

Many advances have resulted from R&D efforts, he said. “We introduced the electronic ballast, an energy-saving device for fluorescent lighting that was developed by our R&D group.”

In the compressor field, a number of developments also have been linked to research efforts, including the use of plastic components. “That has given us a leading edge in that field,” Schneider said.

One recently introduced product is a recessed light. The product represents the “first in the industry” with a plastic housing, Schneider said. “I won’t say that’s revolutionary, but it’s certainly going to put us in the lead in that area.”

Schneider pointed out that most people think about very high-tech industries, such as NASA-related projects, when R&D is discussed.

In reality, he said, “research and development at all levels of technology, regardless of the project, is important to keep a company in the front.”

Environmental issues also affect efforts at Thomas Industries. For instance, the new concentration in lighting is “energy reduction,” Schneider said.

A system developed by Thomas uses sensors to turn lights off and on in a warehouse “depending on the presence of people” or heavy equipment, such as forklift trucks. “This is for commercial lighting,” Schneider said. “It really just dims it to about 40 or 50 percent of its power, because if you were to shut it off it takes 10 to 15 minutes to come back up.”

Just as Thomas Industries uses outside resources, so do many other area firms. “Most of the interactions I have with industry are in developing collaborative programs between the university and industry for research,” said Hanley of Speed School.

“Our costs are probably as low as you can come by in generating research.” But, he said, the expertise offered in a university setting would be hard to duplicate elsewhere. “We possess expertise that they can’t get at the price we offer,” he said, noting the availability of highly sophisticated equipment and highly educated staff.

“What we’re trying to do here at the university is to try to set up collaborative research agreements in a variety of areas,” he added. “We’re trying to put together agreements where we can use other people’s equipment or they can use our equipment, and try to offer this service to the people in the area in an attempt to lower the cost of research and development.”

E.I. du Pont de Nemours & Co. and Rohm and Haas Co. are among the firms affiliated with the program, he said.

Large companies such as General Electric Co. enjoy the advantage of a wide array of in-house R&D. GE spent a record of $4.2 billion in R&D in 1990, a 9-percent increase from 1989’s $3.9 billion, according to its annual report. From 1986 to 1990, the expenditure fluctuated between a low of about 7 percent of sales and to just below 10 percent in 1990.

Such fluctuations, Hanley said, are found in virtually all companies. “Some companies have sporadic funding histories for R&D; they go up and down with the company’s business,” he said.

R&D spending is viewed as “an important ingredient” in business strategy for GE, said Bill Sheeran, vice president of technology at GE’s Louisville appliance manufacturing facility. Appliance manufacturing “is not a technology-driven business; it’s a market-driven business,” Sheeran said. One of the main applications of past R&D has involved the production of new materials.

Permatuf is one example, Sheeran said. “GE was the first on the market with a plastic dishwasher interior and that was a major product innovation” when it was introduced in the 1970s, he said.

The material eliminated “rusting problems” and was developed jointly by GE Appliance technologists and GE’s Corporate Research and Development Center.

Having access to the center, as well as to R&D efforts throughout the corporation, is an “important advantage,” Sheeran said.

More current R&D focuses on devising techniques for design that allow a drastic shrinkage of product-development cycles, Sheeran said. Speed “is absolutely critical,” he said. A “quick response” system already in place shortens the cycle of delivering products to the customer.

“Our adjunct to that is to develop our new products much faster; the reality of it is that the marketplace is demanding new features, new value in the product, so the pace of product development is something we want to pick up dramatically,” Sheeran said.

That involves new computer technology enabling “rapid prototyping techniques,” quick design and, in some cases, overnight production of new parts.

Environmental concerns are expected to continue to play a key role in R&D. “Our big challenge in terms of R&D now is the elimination of chlorofluorocarbons from our refrigeration products,” Sheeran said. “That’s important not only from the point of view of the environment, but it’s also critical because it’s required by the law.”

An additional issue is appliance disposal–brought to the fore by municipalities across the country. It means, said Sheeran, “we’ve got to design our appliances for recycling.”

R&D also is an important part of the corporate philosophies of both KFC Corp. and Brown & Williamson Tobacco Corp., representatives of those Louisville firms said.

Brown & Williamson “continues to make major investments in research and development,” said Roberta Ashe, a company spokeswoman, who declined to release any figures.

Richard Detwiler, KFC’s director of public affairs, said his firm is spending more on R&D each year, but also declined to release figures. Detwiler said KFC’s R&D efforts have produced everything from new food products, such as “hot wings,” to new packaging, such as the “go bucket.”

He added that “consumer demand for products is probably the biggest factor driving our research and development.”

Customer-driven markets in even high-tech industries could be the product of corporate values moving away from the richly innovative, competitive spirit of the past, said Beverly Tyler, assistant professor in the management department at Indiana University’s School of Business in Bloomington.

“The major change in the environment in the United States is that we’re definitely moving to a less competitive and more cooperative relationship–the realization that if we’re going to survive we’re going to have to work with our customers,” said Tyler.

She recently completed a doctoral dissertation on corporate investments in R&D. Her sample included 1,159 firms of all sizes that have invested in research and development from 1986-1989. She did a statistical analysis of 303 questionnaires returned to her out of some 1,100 she sent to chief executive officers selected from the sample. She also selected a group of 16 chief executives to interview in depth.

From her research, she concluded that spending on R&D usually was consistent within a company from year to year. Most of the costs, she found, were for salaries, a “more or less fixed expense.” From 6 percent to 10 percent of sales generally were invested in R&D.

Those figures, however, were reported by the small, entrepreneurial companies whose chief executives she interviewed. Such companies, she pointed out, “have to invest in R&D or they don’t survive.”

Larger companies may spend less as a percentage of sales. The statistical abstract of the United States for 1990, a Bureau of the Census publication, indicates far smaller percentages.

In 1970, for instance, an average 3.7 percent of net sales was invested in R&D by U.S. manufacturing companies. By 1986, the latest year for which figures are available, the percentage had increased to 4.7.

In dollar figures, total R&D increased from $26.1 billion in 1970 to $126.1 billion in 1988, the latest year for which figures are available.

Tyler found the “mindset” of the chief executive to be another key factor in predicting the amount of money devoted to R&D. Over time, she said, many chief executives eventually arrive at what they consider an appropriate amount.

Sales also are important in relation to the amount of R&D money, as well as a company’s diversification. “The larger the company, the more they can invest in research and development,” Tyler said.

“The issue in most of the small companies (whose chief executives) I interviewed was that they would invest more in R&D if they had it, but they just don’t have the cash for it.”

The high cost of capital in the United States also hinders R&D, Tyler said. She noted that West Germany and Japan are among countries that typically invest more in R&D.

According to the statistical abstract, the United States invested 2.7 percent of its gross national product in R&D in 1986; Japan invested 2.8 percent and Germany invested 2.7 percent.

Those figures reflect all R&D spending, however, which includes defense-related projects. When looking at non-defense-related R&D expenditures for the same period, the United States invested 1.8 percent, Japan 2.8 percent and West Germany 2.6 percent.

The United States is falling behind in spending on research as spending abroad increases, according to a report released in February by the National Science Board. The report indicates that spending on research in the United States peaked in 1989 at $154.31 billion. In 1990, the amount fell to $151.57 billion. (Figures are in constant 1991 dollars to eliminate the effects of inflation.)

And while some analysts quoted in a recent New York Times article believe the United States still leads in research spending by business, other analysts interviewed by the paper in a later article believe that Japan has equaled or surpassed the United States as the world’s top patron of industrial R&D.

In both West Germany and Japan, the costs of capital traditionally have been lower than in the United States, Tyler said. “It’s not that we lack the desire, it’s that it costs so much to get the money.”

Because of what she perceives as the lack of money for R&D, Tyler predicts that American businesses will move toward the same spirit of cooperation prevalent in Japan.

“I definitely think there’s a major shift away from the competitive and toward the cooperative,” Tyler said. “But I’m not seeing that shift in the government, and I’m not seeing that shift in workers.”

Just one year ago, white athletic-looking models designed for the “mature” set typified the walking market. But while athletic companies were concentrating on those looks, casual and dress shoemakers crept in and gave a new definition to the category, in many instances captivating the same consumers the athletic industry was pursuing.

Many athletic sources surveyed by FN drew comparisons between walking and the recently resurrected running category: Both walking and running took a while to gain importance in the industry, and sources are still awaiting a walking boom similar to the running craze of the 1970s.

The sport will drive sales, sources agreed, but even athletic walking shoes are tending to look more casual.

Ironically, many walkers, they observed, are still buying cheap running shoes for their trekking purposes. Walking, other sources said, is merely a word, which, because of its origins in the athletic and mature women’s business, connotes comfort in consumers’ minds. Comfort is the key to growth in walking, according to some companies. Others contended styling advancements will sell the shoes. Either way, the market’s reaction to the new generation of walking shoes will determine which factor pulls the most weight.

Following is a sampling of industry outlooks on the future of the walking market:

Peter Bortolotti, marketing manager, running and walking, Converse, North Reading, Mass.: “Walking is definitely an important market. It’s one that has been a difficult one for athletic footwear manufacturers. At the outset, it was a ‘me, too’ situation. We’ve had good success with our product in the market. We’re looking into it as a growth area. We’re aiming to keep it simple.

“People are not used to buying $70 sneakers. The casual shoe business mindset is probably more closely aligned with that of the consumer. That’s not to say walking shoes as sneakers can’t be a success. Lower price points are the key. People balked at high retail prices. Everyone has come down.”

Jens Bang, vice president, domestic sales and marketing, The Timberland Co., Hampton, N.H.: “There’s no question that there are two ends of the walking market–the aerobic end and the recreational end. We see a great increase in hiking and trekking, which is a recreational activity as opposed to an aerobic one. The hiking is an extension of the walking movement.

“We have no intention of getting into the aerobic end. When the person goes off road, Timberland should be involved in that market. The whole walking movement has created a bigger potential market than just aerobic. The rugged outdoor manufacturer can benefit from the market growth.

“A lot of our handsewn product is worn because it is comfortable. We as a company have put a greater emphasis on the comfort market. There is no question that the walking movement has forced manufacturers to become more conscious about comfort. It has forced every manufacturer to be more sensitive and demanding when putting in comfort features.”

Jay Kent, vice president, sales and marketing, Drew Shoe Corp., Lancaster, Ohio: “There’s no doubt in my mind that the walking craze will continue. Many people, especially those who are overweight, need plantar fasciitis women’s shoes that are available in sizes that accommodate a wider foot. For instance, in our new Harmony line, the shoes are constructed of heavier leathers and offer more support features. We make quads to triple-E to size 13. One of the factors important to the growth of walking is that it’s a routine that people can get into without the need to buy a lot of extra equipment or use a special facility. Just look at all the mall walking. Oddly enough, the walking phenomenon is not new. Some of the features being touted as new, Drew has been putting in shoes for more than 50 years.”

Walt Nizinski, senior vice president and general manager, Naturalizer division, Brown Shoe Co., St. Louis: “Since consumer interest in comfort continues to increase and walking continues to gain acceptance as an exercise activity, we believe strongly that there is room in the market for both high-performance walking footwear and comfort-oriented dress and casual shoes. Naturalizer is uniquely positioned to capitalize on both of these opportunities and has embarked on a two-pronged attack. First, we are aggressively expanding our Naturalizer Soft Shoes, a line of comfort-oriented dress and casual shoes positioned to appeal to working women. The shoes combine special comfort features with updated contemporary styling at volume price points of $45-$55. Naturalizer Soft Shoes have performed very well at retail and have become the premier volume-oriented comfort dress shoe collection in today’s footwear market. Secondly, Naturalizer is capitalizing on the walking trend with a new line of walking shoes called NaturalSport. We believe the walking shoe boom is still in its early stages and that walking will continue to become the exercise of choice for millions of women.

“NaturalSport offers women high-performance walking footwear with the Naturalizer intrinsics of comfort and fit. NaturalSport’s initial entry, PerformanceWalker, has been selling exceptionally well. The NaturalSport line will be expanded to meet every woman’s walking need with additional entries in the SportWalker and TownWalker categories.”

Mickey Schulman, U.S. Shoe Corp., Cincinnati: “We have seen no indication that the walking shoe market is slowing down. The market was strong even before we got into it, and the marketing campaign we’ve launched has won us a share of the existing market or has created a larger market. Over the past 90 days, incoming orders have accelerated and new accounts have increased dramatically. Several things are responsible, among them the overall interest of the general public in health and fitness. Also, I believe most women over 35 don’t enjoy running and feel it is accident prone, and this has contributed to the growth of walking.”

Elliot Schwartz, president, Kangaroos USA Inc., St. Louis: “I think walking is a market, but is moving in the direction of becoming a part of fashion with the look of casual footwear. It’s definitely not a fad. More people are getting involved in walking — the Easy Spirit and Naturalizer thing has broadened the base and taken walking footwear out of the athletic stores and into fashion stores.

Robert Hollenbaugh, vice president, sales and marketing, William Brooks Shoe Co., Nelsonville, Ohio: “I think the walking shoe market will continue to grow and, quite frankly, the reason is it’s manufacturer-driven, through marketing and promotion of walking events. It’s such a large market — even compared to running. Walking is a general health thing. One person, who used to be a runner, told me he likes walking better because he can take his wife with him, and his children, even the dog, and they can all enjoy the scenery, the smells, the birds singing.

“Most of the walkers you will see are in groups. It’s a social thing. Running is a solitary exercise. Walking is more relaxed, yet you can still get the same cardiovascular benefits.”

Pete Pfitzinger, product manager, New Balance, Boston: “There are two separate markets. One is athletic footwear, which is distributed with more athletic retailers. The other market is casual and dressy, which is distributed through traditional shoe stores. Both are doing well but are separate.

“Footwear sold in shoe stores is sold more for comfort than for walking. Our product with price points of $110-$125 is more shoe store oriented. In May, we will be delivering a more athletic model at $70, which will have a split distribution.

“For us, walking has been different than we expected. Our strongest point is width sizing, which is an opportunity for the family shoe store. Our new model, which is white, will be more walking-oriented, but people will wear it for other things. In the future, there has to be a narrowing of product. Now, everyone is (presenting) a walking shoe. It might be similar to where running was seven years ago. Walking has to narrow down.”

Reina Rago O’Connor, spokesperson, The Rockport Co., Marlboro, Mass.: “It’s clear to us that fitness walking is not a fad. With 50 percent of the population doing no exercise, there is an opportunity. Nike and Reebok have athleticized walking. We’ve approached it from a different angle, a la everyday casual shoes. We continue to market the ProWalker as a fitness walker for those who want to feel performance. But our thrust and focus will be to translate walking comfort into basics for men and women. We’ll never be an athletic shoe company. We’ll always be a comfort shoe company. We’ve come full circle. We’re adding style to our product. We’ll also continue to have technologically advanced products. We just won’t say you have to go on a fitness walk. The women’s and men’s product manager will develop women’s wide shoes for bunions for every step of your life.”

Jack Boys, marketing manager, Hamptons, North Reading, Mass.: “Performance is important, and it is equated to comfort. The other thing that’s important is the consumer wants versatility with their footwear, and that’s what is driving them into casual shoes. It’s fueling interest in casual and dress looks. It’s fueling this as an emerging market. The term ‘walking’ has become nebulous. Originally, it was more focused on fitness walking, and now it’s moving toward a general walking and people who are on their feet all day.

“Walking’ is a catchall. Walking and comfort have become closer and closer. That’s fueling a need for additional styles and looks. The consumer wants walking features in dress and casual shoes. People are getting spoiled. Traditional shoes do not feel nearly as comfortable. As the shoe become more and more attractive, the shoes become more versatile. The attitude is that (the consumer) wants to be comfortable and look good, too. That’s our direction. We’ve just added the Energy Wave to all our shoes. It performs and works. It ties us into Converse. To have athletic shoe comfort is a plus for us. Retailers are excited. They see this category as a big opportunity although they are a little unsure of which direction it will go. They are merchandising different price points, trying to cover different bases. It’s a way to attract consumers who were buying athletic shoes for leisure and traditional shoes for work. These shoes are more attractive.

Jim C. Autry, president, Autry Industries, Dallas: “The biggest thing with the walking shoe is the support. You’ve got to have the correct support. It’s like having the correct equipment to play football. You wouldn’t play it with basketball gear, or you’d get hurt. When I come to work in the morning, I pass by a jogging track, and I see 75 people walking and a dozen jogging. The malls open early so that people can walk indoors when the weather is inclement. I think walking is on the increase, and hiking the same. Walking is popular with the over-30 age group, and we’re moving to an aging population. The market is on the increase — it hasn’t even been approached yet.”

Tom Raynor, director of marketing, Brooks Shoe Co., Rockford, Mich.: “You have to look at the technology of the walking shoe. We’re planning for the consumer to use it more, so there’s more cushioning in the heel and more support because the consumer will wear it for a longer time. When you go to buy a walking shoe, you’re planning a specific activity. Absolutely, you’ll see whole sections of walking shoes in retail stores. A retailer who tells customers that ‘a running shoe would be just fine,’ isn’t listening to what his customers say because customers are asking for walking shoes. We had a 40 percent increase in walking shoe sales last year. We expect a 50 percent to 60 percent increase this year, and it’ll be huge for us in 1990, when we project that the business will double.

“The initial introduction of HydroFlow technology (this month) is in running shoes, but in July, the back-to-school collection will have walking, basketball, cross-training and tennis shoes. For spring 1990, there will be a lower-priced HydroFlow walking shoe with a non-visible feature (i.e., the special feature will be hidden).

Raymond Sessa, executive vice president, Hush Puppies, Rockford, Mich.: “I guess it’s like the days when running shoes were first introduced, and only 15 percent of the people who bought them actually wore them for running. With walking shoes, people get them on, and they may not be serious walkers, but they get used to the comfort. Everyone has been trying to make the ultimate comfort shoe, the common thread that runs through comfort and career shoes. We have the Body Shoe, with its contoured insoles and memory foam covered with luscious pigskin. We say the Body Shoe is really a walking shoe, but it’s also a casual. The end use is at the customer’s discretion, but we position it as a walking shoe.

“Many retailers never believed the market for walking shoes was that big. But I’ve always maintained that if merchants had a great display of walking shoes, the worst that could happen is that their casual sales would double.”

Frank Legacki, president, Kaepa Inc., San Antonio, Tex.: “It’s your only piece of equipment for walking; it’s got to be functional. With a walking shoe, you’re talking about covering miles. I’m told that cowboy boots are comfortable, but I wouldn’t want to walk five miles in them. Walking shoes are comfortable over the whole distance. We’re already seeing walking-shoe sections in retail stores.

“I believe it’ll grow. I think it’ll also grow with younger people. Our running shoes with high arch support have an action hinge with independent suspension. We have a two-part vamp, which is our specialty. It lends itself to the walking category. We have unique shock absorption — polyurethane plugs in the midsole, with clean, simple designs.”

Ted Gedra, regional sales manager, Wolverine division of Wolverine Worldwide, Rockford, Mich.: “The difference between a walker and a hiking shoe is sometimes styling. The patternwork itself makes it a hiker as opposed to a walking shoe. As things progress, there’s more athletic influence on everybody’s patterns, more crossover looks. As far as the actual sole design, hikers have various lug designs that give a look to the outside.

“We’re not really as tied in to walking as Hush Puppies, but I see more emphasis on comfort, and a casual appearance with walking. The lightweight hiker package offers a number of end uses. That’s one of the reasons the whole category has experienced so much growth. For the rest of this year, it will continue to increase.”

John Thomas, vice president, turntec, Irvine, Calif.: “We put some walking shoe models out on the market, but were just not satisfied with the response, so we pulled them in. Now we’re back to the drawing board. The walking market is a funny market. There is a lot of talk about how fast it is growing, but in fact it is hard to introduce a line. I think most of the walking shoes are still purchased from cheap running shoes and used for an all-purpose shoe. We are looking to add technical aspects to our line before we reintroduce them. We will also be paying attention to price. The main ingredient in walking shoes is comfort, and there is a formula for comfort. If you apply it, it works.

“A person can walk in a soft shoe and be comfortable, but after four hours, they are tired. It is like walking in sand; it requires that the foot do a lot of work. So you need a combination of soft and hard. It is a fine balance.”

Elliot Horowitz, chief financial officer, L.A. Gear Inc., Los Angeles: “Walking is not a particularly strong category for us. We have been in the walking market, and I think it peaked out with the height of Rockport. Since then, it has gone down.

“Some of the other athletic companies that have been in the walking market have not been able to live up to their sales predictions in this category.

“Running, on the other hand is a quarter of a billion dollar business that we have not yet been in. I think we have the potential to Take a bite out of that market.”

Duke Jones, vice chairman, HiTec Sports, Modesto, Calif.: “We have done walking shoes for the last five years, but now we are introducing a line of walking shoes with the same theme as our Air Ball running shoes. They have an air cylinder under the heel that can be replaced, depending on the weight of the customer. We see the walking market as flat right now. Sales have stabilized, but we think that coming out with something more ‘techy’ will increase sales. There is a price barrier of about $45 in walking shoes, and after that there is resistance. But prices are going up with the cost of labor and materials as well as fluctuating dollar.”

Kellee Harris, walking marketing manager, Avia, Portland, Ore.: “For us, the walking market is booming. In fact, probably our most successful shoe ever is the 310 mall walking shoe. We are out of stock with that shoe until June. We plan to expand the category by adding wide widths in both our men’s and women’s walking shoes. We view the walking market as a 40-plus market; however, now we are seeing it drop lower, and our core group is between 35 and 55. The mall walker is 50-plus.”

Betsy Richardson, vice president, marketing, Reebok, Canton, Mass.: “There’s no doubt that we see an evolution of walking. It has gone into greater segmentation. There is a clear performance niche, which is those who are looking for technology. Companies like Reebok are working hard to develop technology to aid the walker. The mall walker fits in here. We are beginning to realize that walking shoes can be developed for a particular vocation or time in your life. With this second group, not a lot of innovation has gone on. The walking shoe manufacturer is looking to this consumer and saying we can offer new technology, new styling. This is an important consumer.

“There are clear needs around women in pregnancy and post natal who look to walking as an activity. We are looking at specific walking needs.”

Americans bought 125 million to 150 million watches in 1988, everything from cheap refrigerator magnets with digital displays to diamond-studded luxury timepieces. That’s up considerably from only 43 million watches in 1969.

But even as U.S. sales grew by leaps and bounds, watches and clocks became a smaller part of jewelers’ total sales. At the same time, the remnants of the U.S. watch production industry virtually disappeared.

U.S. production: The demand for digital watches in the 1970s produced a brief boom in U.S. watch production. In 1969, for example, U.S. watch production totaled 17.7 million. By 1977, production totaled 31 million watches, most of them digital, and more than 1000 stuhrling review. But aggressive price-cutting and a global glut of cheap digital watches burst the balloon. Many small manufacturers and marketers went out of business because they couldn’t compete financially or couldn’t develop an adequate distribution system.

Many nonwatch firms — such as General Electric, Texas Instruments, Gillette and Fairchild Industries — also tried their luck with digitals. They all failed because they didn’t understand watch production and marketing. They thought watches could be sold in the same way as pocket calculators — which a year or two earlier enjoyed immense success in the market. Like pocket calculators, digital watches started at a fairly high price but dropped dramatically as production soared and production expertise grew. While it was possible to sell calculators through almost every conceivable retail outlet, this wasn’t possible with watches.

At the same time, rising costs led other manufacturers to go off-shore to low-cost, labor-intensive production centers in Asia. Timex, for example, shifted most of its production and assembly operations to Taiwan, Singapore and the Philippines. The result: U.S. watch imports mushroomed from 58.1 million units in 1980 to 210 units last year.

By 1988, all that remained of the U.S. watch production industry were some Japanese-run assembly operations in California, a Swiss-run assembly operation in Pennsylvania and small Timex operations in Arkansas and Connecticut.

Jewelers’ sales: Industry experts estimate U.S. watch and clock sales total at least $2 billion annually, and some say as high as $5 billion. (Major vendors in this hotly competitive market don’t like to reveal results of their market surveys). But watches and clocks account for only about 12% of jewelers’ sales, down from 17.9% in 1969.

Why? Many jewelers reduced or dropped their watch and clock departments when discount and off-price retailers stepped into the market. Jewelers and Better Business Bureaus warned consumers that off-price retailers used huge markups to allow for markdowns, and that the discount prices weren’t much different from jewelers’ regular prices. But consumers still flocked to discount houses.

The fodder for much of the off-price watch market was gray-market goods (brand-name items made overseas for foreign markets but imported here and sold at discount prices by unauthorized dealers.)

Off-price retailing of watches got a major boost in 1980 when K mart, the nation’s second-largest retailer, added gray-market Seikos to its jewelry department. Other mass-merchandisers followed suit. By 1984, gray-market watches had become a $100 million market in the U.S.

Efforts increased in the mid-1980s’ to dam the flow of gray-market watches. Watch firms, the American Watch Association and Jewelers of America were among the founding members of the Coalition to Preserve the Integrity of American Trademarks. COPIAT lobbied aggressively against the U.S. Customs Service, which allowed the entry of gray-market goods if the trademark owner was a U.S. firm or had a U.S. outlet. But in 1988, the U.S. Supreme Court ruled in favor of the Customs Service.

Counterfeit watches: Counterfeiting also affects jewelers’ watch sales. Consumers buy fake watches at bargain-basement prices, thinking they’ve bought the real thing for much less than they’d pay a jeweler. But that creates two problems: consumers akribos xxiv reviews end up with a watch of little value and also take away business for jewelers dealing legitimately.

Some watch vendors have started to fight back to protect their names and their profits. Rolex, for example, now spends more than $1 million annually to find and prosecute watch counterfeiters.

And as a whole, the watch industry persuaded Congress in 1984 to pass the Trademark Counterfeiting Act, which makes trafficking in phony timepieces a criminal offense.

The American Watch Association also battles counterfeiting, working with individual watch firms, the Watchmakers of Switzerland Information Center and other trade groups. In addition to lobbying, AWA funded three major investigations of bogus watch trafficking. The most spectacular was “Operation Watchcase,” which uncovered a counterfeit watch network, resulted in scores of arrests and recovered tens of thousands of bogus watches in 1987.

In 1988, AWA, WOSIC and Jewelers of America initiated a successful program built around a phone number (1-800-333-FAKE) to report suspected watch counterfeiters. AWA also produced a video warning TV viewers about fake watches, helped to develop a model state law making making counterfeiting a felony and pushed to erase weaknesses and toughen seizure provisions in the Trademark Counterfeit Act.

Repair service: As watches and clocks started to claim a smaller share of jewelers’ sales, so did repairs. For generations, jewelers and watch repairmen were virtually synonymous. In fact, many jewelers entered the jewelry industry as operators of small watch repair shops.

But from 1969-1989, the number of watchmakers in the U.S. labor market dropped from 30,000 to about 12,000. While every jewelry store once had its own watchmaker, 37% of those polled by JC-K in 1989 had none.

One reason is the smaller role that watches play in jewelry-store sales. Another reason is technological advances such as quartz watches, which need few repairs. Wages also can be blamed. In late 1988, the approximate starting salary for a watchmaker was $10,000 to $12,000.

Yet jewelers say watch repairs are a valuable service. As a result, watch repair trade shops and factories have increased, serving jewelers who no longer offer the service themselves.

Other changes: The U.S. watch market has witnessed a number of other changes in the past 20 years.

The advent of electronic digital and analog watches, with their precise timekeeping, led to great emphasis on marketing and styling. As yuppies began to prosper in the 1980s, advertisements across the U.S. promoted nixon watches for men as fashion accessories first, and timepieces second.

A pioneer in this marketing concept was the Swatch, the trendy, inexpensive, Swiss watch introduced in the early 1980s.

In 1986, clothier Benneton licensed Bulova Watch Co. to produce a line of fashion watches. It was part of a fast-growing trend toward designer name timepieces. By 1989, watch and clocks bore the names of prominent designers and even leading automotive products such as Ferrari, Jaguar and Harley-Davidson.

Luxury watches ($300+) also became a growth market in the U.S. in the latter 1980s, despite rising gold prices and the devalued dollar.

Nonwatch accessories: Some watch firms even expanded into nonwatch fashion accessories. Movado offered products ranging from handbags to glasses. Bulova has a line of 14k jewelry and launched the Buly line of tote, backpack and gym bags in trendy colors with clocks affixed to the outside.

Cartier opened several in-store boutiques and reportedly considered licensing its Piaget watch name for various accessories.

Ironically, Swatch, which helped to launch the trend, is getting out of the fashion accessories business. Swatch officials said the experiment was unsuccessful and that the firm now will concentrate on its core business of watch and watch accessories.

Joseph Bulova knew a trend when he saw one. This one, he thought, had the hallmark of a permanent change.

Bulova owned a small family jewelry shop in New York City. From halfway across the world, he learned that soldiers in World War I had stopped using pocket watches.

The wristwatches made by military suppliers struck Bulova like a bolt of lightning. He realized their ease of use could make them hot consumer products for men. He and his son, Arde, a clockmaker, decided to adapt them for civilian use.

This posed a challenge, because the military watches were simple timepieces lashed to leather straps — too plain for civilian customers.

But Bulova (1851-1935) persisted. He was a master of taste and practicality. He and his son experimented by adding fine Swiss watch movements and decorative touches to the original, Army-issued designs.

In 1919, soon after World War I ended, the Bulovas introduced the first full line of men’s wristwatches with jeweled works (read bulova marine star review). Sales took off. Other makers followed, and the wristwatch became a familiar part of 20th-century life.

The earliest wristwatches had appeared in the 1880s as small clocks that dangled from women’s bracelets. Until World War I, wristwatches were seen as feminine.

Men didn’t wear wristwatches before World War I, because such watches were considered effeminate, says Dana Blackwell, a professional watch repairer and historian.

Bulova believed World War I had stirred deep changes. He bet wristwatches would be a hit with men in the postwar era. He was right.

Women were working in larger numbers, and the Roaring ’20s spawned a generation of more independent and socially active women.

He introduced his first line of women’s wristwatches in 1924. He made them as trim and practical as the men’s — albeit smaller.

The watches became emblems of the flapper generation of the 1920s, and sales rocketed.

It was farsighted steps like this that allowed Bulova and son Arde to found the Bulova Watch Co. in 1923 in New York City. By 1929, the company had cornered about 50% of the U.S. market for watches and clocks.

In a trade where precision mattered, Bulova analyzed details from all angles.

Bulova, who was born in Austria-Hungary and moved to the U.S. as a young adult, learned the tradition of Old World craftsmanship that demanded every watch or piece of jewelry be a work of art. But he was also practical. Bulova realized mass production could revolutionize watchmaking.

Using special machine tools, the Bulovas standardized every part in Bulova watches. Each part was interchangeable with the same part in any Bulova watch.

The innovation allowed millions of high-quality tissot 1853 watches to be mass-produced at lower cost than ever before. This made watches and clocks more affordable for Americans.

Before Bulova’s brainstorm, watch repairmen had to hunt replacement parts or duplicate them by hand. This could take a long time or cost a great deal. Bulova changed all that.

Bulova saw how well people responded to advertising. He and Arde produced a radio commercial — one of the first in the United States.

In 1931, Bulova’s company became the first in the watch industry to launch a million-dollar advertising blitz. Other jewelers thought Bulova was crazy.

But Bulova wasn’t distracted by criticism. His ad blitz swamped radio and print media and made Bulova a household name.

In 1927, when Charles Lindbergh made the first trans-Atlantic flight from New York to Paris, Bulova and his son thundered from the gate with a new product. They had 5,000 special wristwatches commemorating Lindbergh’s flight packed in gift boxes with pictures of the aviator.

The first shipment of these watches sold out in three days. He sold 50,000 more of the watches over the next several years, inaugurating a commemorative watch industry.

As a Czech immigrant familiar with the wars and upheavals that shook Europe, he learned to be prepared for any situation.

Between 1930 and 1940, Bulova amassed enough plants and experts to manufacture complete watches without foreign parts or help.

This didn’t come a moment too soon. When World War II began, the government converted all of Bulova’s plants to defense work.

Though Bulova died before World War II, the firm headed by his son later did a huge volume of defense work, producing military watches, aircraft instruments and fuses and other parts for Navy torpedoes.

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After five years of sustained growth in the U.S. following a long stagnant period, industry experts said the renaissance in consumer interest here for fine Swiss-made timepieces is showing no signs of coming to an end. Optimism reigns for the holiday retail season and kickoff to the new year.

“The high-end market is on fire,” said Andrew J. Block, senior vice president of watch chain Tourneau. “Housing prices are strong, unemployment is lower. People don’t seem to be weighed down by the geopolitical situation, and this is a feel-good purchase.”

The U.S. has emerged as the biggest market for Swiss watch consumption year to date, according to the Federation of the Swiss Watch Industry, the trade group in Bienne, Switzerland. Almost $1.3 billion worth of Swiss timepieces have arrived in the U.S. between January and October, a 15.6 increase from last year’s $1.1 billion during the same period. Hong Kong, Japan and European countries such as Italy, France and Germany follow behind the U.S. in Swiss watch consumption.

Finished Swiss watch exports have shown a downward trend, according to Swiss figures. Almost 20 million watches left the country between January and October, a 4.9 percent decrease compared with last year’s 10-month figure of 21 million. In 2004, total watch exports amounted to 25.1 million.

However, fine Swiss watches show increasingly strong growth because of an overall increase in the value of the timepieces leaving the country. In October, $916 million worth of watches were exported from Switzerland, a 9.2 percent increase over this month last year. Between January and October, the value of finished watch exports was $6.9 billion, an 11.4 percent increase compared with last year’s figures.

The value of Swiss watch exports increased partly because of more use of precious metals, such as white and yellow gold and platinum. Unlike the remainder of the accessories business, which has experienced a stripping away of sparkly touches, fine Swiss watches also continue to use diamond treatments on the face and bezel.

“Diamonds are everywhere, and it’s not just for women, but men also,” said Tourneau’s Block. “Watches that you wouldn’t normally associate with being bejeweled are.”

Block anticipates such bejeweled pieces to be among the bestsellers for the holiday season from brands such as Cartier, Patek Philippe and Tag Heuer. When it comes to price, the sky’s the limit, with watches in the $10,000 and up category drawing consumer attention.

Block said the holiday period is a great selling season, but doesn’t make or break a year for Tourneau, a point echoed by Cathy Cronin, diamond and watch buyer for jeweler Shreve, Crump & Low, which opened in Boston last month in addition to having a boutique in the Mall in Chestnut Hill, Mass., and a sister store, Schwarzschild Jewelers, in Richmond, Va.

“It’s a very important season, accounting for about 25 percent of annual business, but it’s equal with spring, when people are making purchases for Mother’s Day or graduation,” she said.

In addition to industry adjustments to compensate for the strong euro against the dollar, the increase in the value of timepieces has raised the prices on watches in the stores by 10 percent, she said. Retail prices range from $900 to $50,000, with average consumer purchases falling into the $5,000 to $7,000 range.

“Watches are really turning into jewelry,” Cronin said. “Timepieces are carrying higher metal contents and gem weights. The leaders in the watch world are seeing that people are coming into jewelry stores to purchase jewelry. So in order to make watches sell better in the jewelry stores, they are making them more jewelry-like.”

Despite the price increases, sales of brands such as Cartier, Rolex, Baume & Mercier, Breitling, IWC, Jaeger-LeCoultre and Tag Heuer remain so strong that Cronin anticipates upping the space dedicated to watch sales in the Shreve, Crump & Low flagship by 10 feet in the next year.

Cronin also said watch complications, which were once a feature sought out primarily by men, are gaining interest among women buyers.

“Women are getting more educated,” Cronin said. “Women really want to know what they are purchasing, and the more sophisticated watch buyers are going after the more sophisticatedwatches.”

She said the women’s market still represents a huge area for growth for Swiss watchmakers, a point brands are finally recognizing. She cited advertisements by Baume & Mercier that feature Meg Ryan and Tag Heuer that spotlight Uma Thurman as positive steps in increasing a female consumer’s interest in purchasing fine Swiss timepieces. “They are absolutely making the right decision with the right consumer,” she said. “It’s about a three-pronged approach: the sophistication of the watch, the spokesperson for the watch and the fashion focus of the timepiece.”

Tag Heuer dedicated half of its media budget this year to the women’s category, hiring Thurman and tennis star Maria Sharapova as ambassadors for the brand, said Daniel Lalonde, president in North America of LVMH Moet Hennessy Louis Vuitton, which owns the brand.

“In the past, Tag Heuer has been mainly a male-skewed brand,” he said. “However, we’ve had tremendous growth in the women’s category this year. Prices have gone up, and the customer is trading up. Women’s average price points have gone up in the double digits, but they are buying more expensive watches and recognizing the value in how a watch defines a person.”

Sharapova even had input in the development of Tag Heuer’s $1,895 Formula 1 diamond watch, which premieres for the holiday retail season and features 125 diamonds on the bezel.

“The theme of this year and especially the last two months are that diamonds are a girl’s best friend,” Lalonde said. “We expect a huge sell-through on the Formula 1. We are bullish on the collection for the next six weeks.”

Lalonde said the luxury watch business in the U.S. is largely underpenetrated with only 5 or 6 percent of the population owning a watch that retails for more than $500.

“In Europe, that figure is two to three times higher,” he said. “Therefore, the U.S. market represents huge growth potential. We have a lot of great years ahead of us in the watch category, and especially on the women’s side. I think the women’s business will grow a little faster and what you will see happening is that brands will start defining themselves more to stand out, especially brands that have a heritage and a history to tell as they will be able to use that story to continue to outpace [competitors].”

Julien Tornare, president in North America of Vacheron Constantin, which has celebrated its 250th anniversary this year, said the brand’s message has been about showing the good points of being old.

“We are very proud of our history and our savoir faire, as well as our ability to run our business in a contemporary way,” Tornare said.

The holiday season is important for the brand, not only because business peaks, but also because many of the brand’s new models that premiered during April’s Swiss watch fairs begin arriving in retail stores, Tornare said.

One model Tornare said represents the direction of the brand in the ladies’ market is the new Malte silhouette with a moonface complication. The moon itself comprises diamonds. It retails from $20,000 to $30,000.

“Women are interested not only in jewelry, but also in the nice movements of the watch,” he said. “It’s a trend for the ladies’ segment.”

Tornare expects double-digit percentage growth from last holiday season to this holiday season.

Hank Edelman, president of Patek Philippe in the U.S., said the brand is also optimistic about the holiday season.

“It’s becoming an ongoing thing, but this year it is more so, especially among women,” he said. “There is more consciousness among female American consumers for a quality watch.”

Edelman said the brand’s Twenty-4 silhouette continues to be its bestseller, but the men’s-inspired sporty oversized Aquanat Luce with a colorful rubber strap and diamonds at the bezel is a new piece that has received positive consumer response at $29,950 retail.

“It’s a different look for the American market for us,” he said. “However, women are enjoying it.”

At Michele Watches, creative director Michele Barouh continues to focus on the brand’s strength in ladylike looks with the introduction for the holiday season of its new Attitude silhouette.

“We have steady business all year-round, but we do have growth at the end of the year because the brand’s watches are in a great gift price point of $500 to $7,000,” said Barouh. “We are also doing better every year in general, with our sales increasing. Women shoppers are definitely more savvy than they were a few years ago. They want the quality there, along with the great aesthetic.”

For the accessories market, it was a timely introduction. When Swatch Watch USA unveiled its plastic quartz watch in 1983 — selling for $25 to $35 — the Swiss firm started a revolution.

Now literally dozens of companies in the U.S. and abroad are aggressively trying to carve out market share in what is being called the “fashion watch” market — an amorphous category that covers everything from low-end imports, with a splash of color on the face, to sophisticated graphic pieces that have become a showcase in better department stores.

The key players have become the accessory industry’s vanguard — entrepreneurs who depend on sharp marketing techniques, imaginative promotions and advertising and a constant injection of new styles to insure the area’s longevity. No one knows how large the market is nor its potential, since even the traditional watch makers have begun adding their version of fashion watches to their lines. Estimates of total wholesale volume from executives run the gamut from $100 million to $300 million, and that number grows daily.

But even Swatch Watch did not have an easy time of it at first. Looking to rebuild Switzerland’s position in the watch market — having suffered serious incursions from the Far East — Swatch (a combination of “Swiss” and “watch”) set out to capture the lower end, which had been virtually untapped by the Swiss. The watch, test marketed in the U.S. through traditional watch channels, was made of plastic, could not be repaired and sold at price points far below what watch buyers were used to.

As Swatch began approaching department stores, response was lukewarm and sell-through was initially soft. As Max Imgruth, president of Swatch Watch, said in an earlier interview, “We had to convince the fine lady accessories buyers that the watches were chic.”

The firm expects to sell more than three million watches in the U.S. this year, with total volume for the U.S. subsidiary breaking the $125 million mark, including its expanded group of accessory items.

Competitive firms are quick to give Swatch its due as the forerunner of the trend and will concede that it holds anywhere from one-fourth to one-half of the market share.

Yet they feel there is a department store place for them as well, and are striving to differentiate themselves from Swatch and attract their own following. Said Mort Gershman, president of Lorus Products, a well-established watch firm that recently added a fashion line: “Swatch is a significant part of the market, but I don’t think it creates the same hysteria in areas outside of New York, Los Angeles, Chicago and Florida.”

While Swatch has used its watch’s customer base to create an apparel tie-in, other firms, such as Fiorucci, Colours by Alexander Julian and Guess, have been able to capitalize on the success of their apparel to build their watch business.

The Guess line, which is marketed by The Callanen Watch Corp. here and has a wholesale tag of $21, claims to be second to Swatch in department store sales, doing $12 million in wholesale volume. Since the major fashion watch business is being done in women’s department stores, where Guess has a strong foothold already, the firm has a natural distribution outlet, according to Mickey CAllanen, president.

Callahen also introduced a lower-priced fashion line, under the Brooke label, which wholesales in the $13.50 to $17 range.

E. Gluck Corp., a watch firm based in Long Island City, N.Y., which claims to be second in unit sales in the U.S. to Timex, has brought out two fashion watch lines: Awatch, a plastic watch aimed at mass merchandisers, sold through the Armitron division; and Slinkys, a watch that comes with different color metal bands that resemble the “Slinky” toys, targeted to department stores. The Awatch wholesales for under $20, while Slinkys wholesale for under $30.

Overseas Products International, based in Texas and represented in New York by Discoveries, Inc., introduced a plastic watch called Linus Q for spring 1985 that came with four interchangeable faces, wholesaling for $18. Discoveries owner Dan Thurston, who was new to the watch business, was “totally freaked” by the positive response. The company also has introduced a fashion watch with a metal mesh band for $20 wholesale.

Timex is one of the traditional watch firms that has taken the “if you can’t beat ’em, join’em” route.

“There’s no rhyme or reason why these watches sell,” said David Rahilly, vice president of marketing and sales for the U.S. “Some of the dials are even hard to read.”

Nevertheless, in the fall Timex introduced its Watercolors fashion line. Rahilly conceded his company was late in entering the market. “We had not anticipated the enormous impact Swatch would have,” he said. Rahilly added that the Watercolors line, which wholesales from $9 to $13, will be expanded and that fashion watches become a “very, very important part” of the Timex line.

Even Swatch’s sister company in Switzerland, Tissot watches, has decided to take advantage of America’s appetite for the new and different. In the fall it launched The Rock Watch in Chicago and Boston — a mid-priced watch whose granite face was chiseled from the Alps.

Swatch, however, does not believe imitation is the highest form of flattery, and has at least 20 lawsuits pending against firms that it claims have violated its patent or used deceptive advertising exploiting the Swatch nme. In Imgruth’s opinion, most of the fashion watch firms “have taken advantage of our spearheading and have copied us in every respect.” He bitterly assails the lower-priced styles, in particular, saying, “Every piece of junk out there damages our image.”

Swatch’s competitors have their own bones of contention. Since Swatch’s policy is one of limited distribution, there is frequently not enough supply to meet demand, according to several executives.

“Swatch can’t deliver, and no stores have open-to-buy because it’s tied up with Swatch,” one watch company executive complained. Commented Imgruth, “It’s better than having too much merchandise and not being able to get rid of it. Stores have become too greedy; they want to maximize their business, we want to optimize it.”

One aspect all companies agree on is the necessity of continuously bringing out new looks to maintain the fashion excitement. As Callanen noted, “If we want to keep the business healthy, we need newness. When the counters start looking staid, business will go bad.” Many firms are coordinating their colors with ready-to-wear trends and introducing their collections in conjunction with rtw markets.

But, cautions Abraham Shafir, president of Oraflex, Ltd., licensee for Bonjour Watchwear, manufacturers must be extremely careful in their designs or they will have huge inventory problems. Timex’s Rahilly agreed, “I’ve heard many unhappy stories of competitors stuck with items like all white watches.”

The need for quick turns and for shallow inventories has been “a little alien to traditional watch buyers and somewhat disconcerting,” Rahilly noted. Said Shafir, “The old-time jewelry buyers have had the hardest time. They know they have to have a fashion watch segment, but they don’t understand the fast turns. While traditional watches may take 90 to 180 days, our types of watchescan be sold out in two weeks.”

Gershman, of Lorus Products, pointed out that a lot of basic watch buyers have switched their open-to-buy, hungry for those quicker turns. But, he warned, they could find themselves short on better goods for the holiday season, and they must remember “the margin on a $25 watch is not the same as on one costing $75.”

Unlike other accessories, fashion watches require little education from salespeople; customers do not have to worry about fit, merely price and looks. Consequently, a number of firms have begun offering displays that can act as “silent salesmen” for their merchandise. Some firms, such as Callanen, have borrowed merchandising techniques from other industries. Using cosmetics’ purchase-with-purchase strategy, Guess watch customers have been able to buy a Guess clock for $15 or a Guess calculator for $5. Companies such as Bonjour and E. Gluck have used television advertisements to call attention to their products.

While the momentum for fashion watches shows little signs of subsiding, several companies have expanded their accessories offerings beyond watches to embrace a lifestyle concept. Capitalizing on its watches‘ success, Swatch introduced an accessories line last spring that includes everything from umbrellas to sunglasses. This fall, it expanded further by bringing out selected apparel items. Imgruth said watches will continue to be emphasized, but he expects this year’s product mix to be about 55 percent watches and 45 percent nonwatch products.

Fiorucci recently introduced its accessories line, including fashion watches, which ties into its rtw themes. Watches, which are priced higher than Swatch, are expected to bring in 25 to 30 percent of overall volume.

Retailers are working with manufacturers to create boutiques within their department stores to group these items. Fiorucci has announced plans to open Fiorucci Time accessories shops in Jordan Marsh in Boston; Woodward & Lothrop in Washington, D.C.; Burdine’s in Miami; and Macy’s in San Francisco. According to Carlos Martinzez, president of Time Distributors, Inc., the exclusive agent for the shops, 500 in-store boutiques are planned nationwide by midyear.

Swatch is hoping to have 400 of its Swatch shops opened by the end of February. Its ingredients for continued success call for complete watch turnover at least every month, controlling the merchandise for each store it does business with and delivering against sell-through. “As long as we stay a sharp, innovative young team, we can keep ahead of any watch revolution,” said Imgruth.

A number of medium-priced lines of sport wrist watches are selling well in department stores. These include the Ann Klein, Ann Klein II, Fossil, and Guess lines, as well as licensed cartoon-character watches. Most of these watches are selling in the $20-$200 range, and some industry executives believe that sales are coming at the expense of higher-priced watches. In addition, Joe Boxer and Timberland will launch wrist watch lines in 1995.

And, according to industry vendors and retailers – a segment in which merchandise typically retails in the $20 to $200 range – brands are currently the biggest news of all.

According to a variety of retailers, brand names have become a critical factor in determining fashion watch purchasing patterns. In the meantime, the price issue, which heretofore had been considered paramount, has become less important.

Much of the action right now, stores say, is happening in the Anne KIein, Anne Klein II, Fossil and Guess lines, as wen as novelty-oriented licensed lines, Looney Tunes and Disney among them.

In addition, merchants say they are always willing to test new entries. Some recent brand-name newcomers cited by stores include Nautica, Liz Claiborne, Swiss Army Watches and Hugo Maxx. Balancing out this group is a slowdown in a few other brands, such as Swatch, which some stores said has not been performing up to par of late.

“Watches are one of the more explosive driving forces for main floor business,” said Kim White, merchandise manager for watches at Federated Merchandising, the buying arm for Federated Department Stores. “We’re positioned for another year of tremendous growth.

“Consumers are now building a watch wardrobe for their varied needs – career, casual Friday wear, weekend, sport and young-at-heart looks,” White noted. “It’s hip to wear a Looney Tunes watch with an Armani suit.”

Guess and Fossil are anchor brands in Federated Stores, according to White. These are followed closely by Anne Klein and Anne Klein II, which are expected to grow even more this year as a result of the return to ladylike dressing.

Sportly merchandise has also been scoring big, White said.

“It’s still `Clinton Chic’ to wear a plastic sport watch,” she noted. “And the more functions the better.”

“While our growth may be slightly less than last year, we’re still projecting good double-digit gains this year,” said Don McKean, merchandise manager for fashion and better watches.

Business is coming from a combination of the big brand names as well as newer entries such as Hugo Maxx and even Penney’s own private label line, Arizona.

He added that although the fashion watch category continues to grow, this is probably to the detriment of the better segment of the market, which includes such brands as Seiko, Bulova and Citizen. This segment struggled to finish last year with flat sales, McKean said, and he expects that performance to be repeated this year.

Among big-brand vendors in the fashion watch field, most reported very healthy increases in 1994 and are projecting similar growth this year. They claimed increases averaging 20 to 50 percent for last year, despite the fact that Christmas sales came very late in the season. Many are particularly optimistic because of early reports of strong retail sell-throughs in January, traditionally one of the slowest months of the year.

“The launch of bracelets and metals last fall greatly contributed to our success,” said Mark Odenheimer, vice president for the Anne Klein and Anne Klein II divisions of E. Gluck.

Those categories will be further exploited this year and, he added, “We’re being very aggressive in terms of focusing on high-performing areas like interchangeable sets and classic strap business.”

Mark Shell, vice president of sales for E. Gluck’s Armitron division, which also includes its licensed Looney Tunes and other cartoon character lines, credits his products’ growth to a surge in items priced at retail in the $20 to $30 range combined with a rebound in sport business.

Armitron’s Instalite sport line, which has a dial illumination feature, will be expanded this year to include more casual lifestyle and rugged outdoor looks with leather, suede and metal bands retailing for $35 to $45, he said.

On the novelty side, the firm has created the licensed collection of watches for “Batman Forever,” the third feature film about the caped crusader, opening in late June.

Fossil continues its focus on brand name and image expansion as well as product diversification, according to Peter Benanti, vice president of marketing.

To fill out its core watch line, this year the company is adding two new watch collections – Defender and FSL – as well as a sunglass line.

“We’re looking at snow boarders, mountain bikers, surfers, skate boarders and rock climbers – those leading-edge alternative lifestyle consumers that demand functionality,” he noted. “We took the utilitarian trappings of this market and made it into fashion.”

FSL’s retail price range of $85 to $90 is slightly higher than that of the Fossil brand. The firm will begin shipping it at the end of May to leading U.S. sporting goods stores as well as department stores.

Benanti declined comment on the Defender line, saying only that it will be shown at the May accessories market.

Timex is coming off a particularly strong year in 1994, which saw the launch of its licensed Nauticabrand. Two more licensed collections will bow this year. The Joe Boxer line will hit stores in time for the back-to-school season, with Timberland arriving for the holidays.

Justine Jennings, manager of fashion watches, said Joe Boxer is geared to the teen and young adult market – a new market for Timex – with retail prices ranging from $40 to $100.

She would only divulge that the unisex line would represent a “unique way of telling time” and noted that the name, while known to consumers, hasn’t “maxed out yet.”

Timberland will be directed to a more upscale element. With prices starting at $60 and going as high as $200, the collection is geared for active outdoor enthusiasts, according to Susie Watson, Timex’s trend analyst.

Unlike sport, which focuses on endurance and timing, Watson said the outdoor market is geared to multiple fabrications like waterproof leather and nylon combinations, with style rather than functionality being key.

“Timberland is a global name with a strong image, which we intend to support with a large advertising campaign,” Watson added, noting that Timex will participate in the Outdoor Retailer trade show in Nevada in August in order to target sporting goods stores and other current Timberland-approved outlets as well as department stores. The print ad campaign will break in November and December.

Guess expects its projected 48 percent growth this year to come primarily from its new Waterpro line and from a new product category to be launched in August, according to Mickey Callanen, president of The Callanen Group, which produces Guess watches under license. He wouldn’t discuss any details except to say that the firm’s national advertising program, which began last Christmas, will also be expanded by 25 percent to support it.

The U.S. Supreme Court on Monday agreed to hear a case in which Costco Wholesale Corp. is challenging Omega SA’s right, as a foreign manufacturer, to use copyright law to control the distribution and resale of the watchmaker’s imported products.

The decision means Costco will have the opportunity to make the case for preventing Omega from restricting middlemen from selling its watches to discounters like Costco.

The case has significant implications for off-price retailers and discounters that often purchase imported goods from middlemen and distributors at lower prices, rather than buying direct from a manufacturer or its authorized U.S. distributor, and then selling them in the U.S. below the brand’s official price. Online auction sites such as eBay also could be affected by the decision.

Costco filed a petition for a writ of certiorari in May, on appeal, asking the court to consider the case and review whether Omega can use a copyrighted image to control secondary distribution and resale of its watches made in Switzerland once it has sold them to a foreign distributor.

At the center of the case is whether a provision under U.S. copyright laws known as the “first-sale doctrine” applies to imported goods. Under the doctrine, a manufacturer’s rights to distribution of a product end upon the first authorized sale it makes.

“Costco is pleased with the cert and is looking forward to litigating the case in the Supreme Court,” said Roy Englert Jr., a partner in Englert, Orseck, Untereiner & Sauber LLP, the law firm representing Costco.

The Supreme Court ruled in the 1998 Quality King Distributors Inc. vs. L’Anza Research International Inc. case that the first-sale doctrine does apply to goods made in the U.S., exported abroad and reimported to the U.S. The specific question in the Costco case is whether it makes a difference whether the goods are manufactured abroad.

“I think what it indicates is there were loose ends that were left open in the Supreme Court opinion in the Quality King case,” said Seth Greenstein, an attorney with Constantine Cannon LLP, which represents the Retail Industry Leaders Association and the National Association of Chain Drug Stores, which filed a joint amicus brief in support of Costco. “The issue does repeatedly arise in lower courts. I would surmise the reason they took it was to resolve loose ends and give guidance to courts in an issue that continues to perplex them.”

Justice Ruth Bader Ginsburg filed a concurring opinion in Quality King, agreeing with the outcome because it involved the “round-trip” of goods manufactured in the U.S.

“That led courts, including the Ninth Circuit in the Omega vs. Costco case, to believe that the outcome would be different if the goods were manufactured outside the U.S.,” Greenstein said.

Greenstein said he was “optimistic” the High Court will reverse the decision against Costco issued by the Ninth Circuit Court of Appeals in San Francisco.

In 2004, Costco purchased 117 Seamaster style Omega watches from a U.S. distributor. It was later revealed in discovery that Omega had sold some of the watches to authorized foreign distributors in Egypt and Paraguay who subsequently resold them to a U.S. distributor, according to Costco’s court documents.

Omega filed suit against Costco in 2004 after the warehouse club sold 43 of the Seamaster Omega watches in its stores, alleging Costco’s acquisition and sale of the watches constituted copyright infringement. Costco charged that Omega created a laser-engraved emblem for the back of itswatches and applied for a copyright in the U.S. for the sole purpose of invoking the Copyright Act to “restrict the resale of its products.”

Costco also argued that “under the first-sale doctrine…Omega’s initial foreign sale of the watchesprecluded claims of infringing distribution and importation in connection with Costco’s subsequent sales.”

The U.S. District Court for the Central District of California ruled in favor of Costco, but the appeals court reversed the lower court’s decision, saying copies made abroad by the holder of a U.S. copyright for sale abroad are not subject to the first-sale defense.

Omega argued in court documents filed with the Supreme Court that the Ninth Circuit’s decision “gives effect to the intent of Congress to give copyright owners enforcement rights against unauthorized parallel imports.” Omega also charged that after a deal could not be reached, Costco knowingly obtained the watches from a source who was buying the watches outside of the U.S. and importing them to the U.S. without Omega’s authorization.

However, RILA and the NACS said in their brief that, “Retailers need confidence that lawfully produced goods they purchase from distributors can be resold in the United States commerce free from claims of copyright infringement and constraints on consumer rights.”

With the debut of Synchrony, the first in what will be a chain of watch retailing units, LVMH Specialty Retail Concepts, a division of LVMH Moet Hennessy Louis Vuitton, has added another new dimension to its retail world.

The first Synchrony unit, a 2,700- square-foot space, was unveiled Nov. 18 at the Glendale Galleria in Glendale, Calif.

“We’ve picked about 50 to 75 locations that we thought would be appropriate and are going after them,” said Frederick W. Wilson Jr., president and chief executive officer of LVMH Specialty Retail Concepts.

“We are a little eclectic in our real estate approach to begin with, but we would like to end up with clusters of stores in areas [of the country].”

Although Wilson declined to provide specifics, he said targeted Synchrony locations include prime cities and major malls in Florida and New York, on the West Coast and in the Midwest.

The second Synchrony store, at 2,500-square-foot unit, is slated to open Jan. 15 in the Mall of America in Minneapolis, Wilson said.

Wilson noted that unlike merchandise at other watch specialty stores, Synchrony’s assortment is grouped by lifestyle and then by brand, rather than just by brand alone.

“What allows us to merchandise by brand within category is that our assortment is strong enough and wide enough,” said Helen Neff, senior vice president of merchandising for LVMH.

“When we carry an assortment of bracelet styles within a brand, we make sure that there is enough there to make a statement.”

The categories include sport and active watches, metal bracelet pieces, classic timepieces, finewatches and children’s watches, the latter of which are displayed on an eye-level table that is shaped like a toy top.

Each brand offers anywhere from 30 to 200 styles. Only one of LVMH’s recently acquired stable of watch brands — Christian Dior — is currently carried in the new store. Wilson said the company plans to bring in more of its brands at a later date.

Shoppers enter the new store, located in the Macy’s wing on the first level of the shopping center, through doors flanking a working watch 8 feet in diameter.

The watch is synchronized with the atomic clock in Denver. The 24 world time zones are displayed on clocks around the store’s interior.

Those familiar with another LVMH concept, its chain of Sephora beauty emporiums, may notice some similarities.

Open-sell is a key element of the format at Synchrony, as it is at Sephora. The majority of watchesare displayed in two open-sell wall units that run the length of either side of the store. The units feature small, box-shaped vitrines, each of which houses an individual watch on a stand, giving consumers easy access to the merchandise. The display units themselves swing out to reveal stock storage space. Fine watches are displayed in more traditional, locked cases in the rear of the store.

The center of the store is dominated by a round cash wrap station and the children’s watch stations. There are also two interactive kiosks with touch-screen computers that display product information, such as instructions for setting various brands of digital watches. Battery replacement for watchespurchased at Synchrony is available on site, for as long as customers own their watches.

A display ranking the top 10 best-selling men’s and women’s watches will be changed weekly and will note fashion trends and new watch inventions.

“We are targeting a younger audience that will be attracted by the bells and whistles of the entertainment aspects of the store,” said Neff. “The product that is there, though, covers a wide range of tastes and will appeal to everyone, from kids to grandparents.”

The store is staffed by 10 to 12 salespeople, who are referred to as “timekeepers” and who wear an informal uniform — a long-sleeved black shirt with Synchrony embroidered on the wrists, a gray vest and a black skirt or pants.

“We are extremely big on customer service,” said Wilson. “Even though this is a freedom-to-shop environment, we are very rich in staffing. We are not cutting back on staffing because of the way we are retailing. Because of the foot traffic, we have planned a high level of staff.”

“The colors are meant to be modern and inviting,” said Wilson. “From the sleekness of the walls to the warmth of the floor colors, we worked very hard to get the right combination.”